US ELECTIONS: Oil, biofuel industries weigh uncertain impact of Trump tariffs

The US oil industry could be negatively affected by Donald Trump's proposed tariffs, which could lead the industry to pass on higher costs of imported crude and production supplies to consumers as higher gasoline prices, observers say.

Throughout his 2024 campaign, the former president has proposed tariffs on all US imports as high as 20%, as well as a tariff as high as 60% on Chinese goods if elected to a second term, arguing that such policies would promote domestic manufacturing and reshoring of jobs across the US economy. Vice President Kamala Harris has called the tariffs a "sales tax" on American consumers, while economists, such as those at the Yale Budget Lab, have said they could increase annual costs between $1,900 to $7,600 for the typical US household.

While the USoil industry views Trump's energy policies positively, oil industry trade groups have been pushing back on Trump's tariff proposals throughout his campaign.

"The American Petroleum Institute is a free trade organization, and we agree on the importance of trade being both free and fair," Justin Prendergast, a spokesperson for the API, the largest oil and gas industry trade group, told S&P Global Commodity Insights in an email. "We continue to educate policymakers on how the overly broad use of tariffs can have serious unintended consequences for US consumers and businesses, and these policies should be carefully considered."

The American Fuel and Petrochemical Manufacturers, another large industry group, did not respond to requests for comment.

According to the US Energy Information Administration, the US imported 6.4 million b/d of foreign crude in 2023 alongside an additional 2 million b/d of fuel products. In July 2024, the most recent month for which the agency has data, the US imported 7.1 million b/d of crude and 1.9 million b/d of fuel products.

Imports from Canada accounted for 4.9 million b/d of the 9 million b/d crude and fuel products imports for that month. Non-OPEC countries comprised 7.6 million b/d of the total.

'A 100, 200, 2,000% tariff'

The precise implementation of Trump's proposals, or whether it would include the oil industry, which he has promised to "unleash" if elected, remains uncertain and difficult to project. Trump has proposed both 10% and 20% blanket tariffs at different stages of his campaign.

A Trump campaign spokesperson did not respond to requests for comment.

At an Oct. 15 event at the Economic Club of Chicago, however, Trump said his administration could consider "a 100, 200, 2,000% tariff," and has continued to stand by the broader policy even as US business leaders have increasingly criticized it.

"I don't think anybody in the business community thinks it's a good idea," William Reinsch, senior advisor for the economics program at the Center for Strategic and International Studies and former president of the National Foreign Trade Council, told Commodity Insights Oct. 28.

Oil companies that support lower corporate tax rates and increased drilling access on public lands may have little recourse but to pass the higher costs of importing fuel -- as well as production supplies such as oil country tubular goods -- on to the consumer, he said.

Jim Roe, an attorney at Holland & Knight who co-chairs the firm's oil and gas practice, agrees.

"The industry is very concerned, not as a potential hindrance to their export of oil and gas to other countries, but on the impact of their supply chain," Roe said during a webinar Oct. 22. "It's really one of the sole areas of disagreement between the traditional oil and gas sector and a potential Trump administration."

Refineries already set up to import foreign crude would likely continue to do so, rather than undergo prohibitively costly facilities overhauls, Reinsch said. Likewise, while some companies could shift supply chain sourcing, others would continue current practices at the higher tariff-imposed cost, he added.

"Changing would be expensive, so they'll probably just shut up and pay the tariffs," Reinsch said. "But it's going to make their input more expensive, which means their output, which is gasoline, for the most part, is going to be more expensive. So gas prices are going to go up because they'll pass costs through. Every part of the industry is going to get hurt in one way or another, but I don't think they're going to make a huge complaint about it."

Biofuels industry wants targeted approach

One area of US fuel production where tariffs could be viewed more favorably is the biofuels industry. While US imports of ethanol are negligible, some producers have pushed back on foreign feedstocks, like Chinese cooking oil, being eligible for new clean fuel tax credits under the Biden Administration's signature Inflation Reduction Act. The industry has also lobbied against what it says is a lopsided US trade policy with Brazil, which has restricted access there to US-produced ethanol while being allowed to sell its own products in the US market.

However, benefits specific to US ethanol trade policies would likely be outweighed by concerns if broad tariffs lead other countries to retaliate, Renewable Fuels Association President Geoff Cooper said.

"If a country allows free and fair access to their market for our biofuel products, we should do the same for their biofuels," Cooper said. "If, on the other hand, a country has a tariff or a technical barrier in place that blocks access, restricts our access to their market, we think it's appropriate to consider reciprocal treatment or some kind of equalization to level the playing field.

"We've always preferred a more targeted case by case approach to to trade policy and looking at various measures to regulate imports and exports," he added. "We have some some trepidation painting with too broad a brush, and what that might mean in terms of retaliation and new barriers for our products."